To The Moon

Today's Hong Kong market opened higher and continued to gain, with the Hang Seng Index paring some of its advance by the close, while the Hang Seng Tech Index delivered a strong performance. The AI hardware sector saw a collective surge, leading to significant gains for related ChiNext ETFs. The implementation of a US-Iran peace agreement fueled substantial rallies in Japanese and South Korean stock markets, driving up related South Korea-focused ETFs. At market close, the Hang Seng Index was up 0.5% at 24,842.67 points, with a full-day turnover of HK$283.353 billion. The Hang Seng Tech Index rose 1.28% to 4,765.58 points.

Among major Hong Kong-listed ETFs by size, the Tracker Fund of Hong Kong (02800) closed up 0.64% at HK$25.24. CSOP Hang Seng TECH Index Daily (2x) Leveraged Product (07709) surged 13.75% to HK$121.20. CSOP Hang Seng TECH Index ETF (03033) gained 1.26%, closing at HK$4.668.

Sector Performance Highlights

The AI hardware segment experienced a broad-based rally, with concepts like PCBs, CPO, and MLCC continuing their upward trend. The ChiNext Index benefited from a significant increase in the weighting of hard-tech stocks following its recent index rebalancing, leading to substantial gains for related ChiNext ETFs. By the close, Fullgoal ChiNext ETF (159971) surged 20.03% to RMB 1.606. Fullgoal ChiNext Artificial Intelligence ETF (159246) rose 7.32% to RMB 1.349. ChinaAMC ChiNext Growth ETF (159967) gained 7.14%, finishing at RMB 0.96.

This follows the ChiNext Index and ChiNext 50 Index completing their regular rebalancing and implementing new index compilation rules. The rebalancing involved removing several healthcare and consumer stocks while focusing on adding hard-tech companies in semiconductors, optical communications, and advanced manufacturing, further elevating the weighting of strategic emerging industries within the two indices. Analysis suggests that following this structural reshaping, the ChiNext board now exhibits both valuation and growth advantages, aligning closely with policy directions for new quality productive forces and representing a key undervalued area for A-share growth sector allocation.

Looking at specific segments, the technological revolution in AI optical communications is entering a period of frequent catalysts. As AI clusters scale from tens of thousands to millions of computing units, data center networks are transitioning from electrical to optical interconnects, accelerating the adoption of CPO, NPO, and OCS technologies. Nvidia's commercial CPO switches have been delivered to Lambda Labs with mass production slated for the second half of the year. Google has placed a large order for NPO for its TPU cluster interconnects. Lumentum's backlog for OCS exceeds $400 million, indicating a rapidly maturing industry ecosystem. This direction is poised to become a major technology theme in the second half of 2026.

Korean Market Rally and ETF Rebound

The implementation of a US-Iran peace agreement spurred significant gains in Japanese and South Korean equity markets. The KOSPI index rose nearly 6% at one point, with SK Hynix surging up to 8% and Samsung Electronics gaining nearly 7%. Related South Korea-focused ETFs rebounded strongly. At the close, CSOP Hang Seng TECH Index Daily (2x) Leveraged Product (07709) jumped 13.75% to HK$121.20. CSOP Samsung Electronics Daily (2x) Leveraged Product (07747) advanced 12.65% to HK$187.00. TR Korea (02848) climbed 6.51% to HK$2,054.

According to recent reports, the UK, France, Germany, and Italy issued a joint statement indicating their readiness to lift sanctions on Iran following the US-Iran agreement to end the war, in exchange for Iranian steps regarding its nuclear program. Separately, market reports suggest SK Hynix is preparing to provide HBM4E samples to key clients, with shipments potentially starting as early as this month (June) or next month at the latest.

Citigroup has raised its year-end target for the KOSPI index to 10,000 points from 8,500, citing sustained profitability growth in memory chips and the South Korean government's strong fiscal stimulus measures. The bank highlighted three tailwinds supporting this upgraded outlook: robust semiconductor exports, spillover effects from the sector, and expansionary fiscal policy. Citigroup expects profit growth to expand further from the AI field into robotics, exporters, and manufacturing companies by 2027, with the ongoing tight supply in memory chips likely to persist, further extending the sector's upcycle.

Institutional Perspectives

Analysis points out that last week's correction in the Hong Kong market primarily reflected global liquidity tightening and volatility in overseas assets. Many of these disruptive factors are expected to reverse, and with market sentiment at extreme lows, there remains room to play for an oversold rebound. The peak period for overseas events is concluding. US May CPI month-on-month growth met market expectations, with core inflation being relatively mild. SpaceX's listing on June 12th has alleviated capital siphoning effects. Subsequent focus will be on the FOMC meeting; adjustments in US stocks themselves may help temper expectations for interest rate hikes within the year.

The view is that while Hong Kong's own fundamentals haven't changed materially, the level of panic has reached an extreme over the past two years. The derivatives component, in particular, has hit an extreme low, possibly indicating that short-selling pressure has been fully released. This extreme emotional bottom itself provides a cushion, and opportunities for a rebound driven by short-covering from an oversold condition still exist.

In terms of allocation, short-term focus should be on oversold sectors with heavy short-selling pressure and marginally stabilizing profit expectations (such as discretionary retail, media core stocks) and high-dividend defensives (banking core stocks). The AI hardware chain currently offers limited value for money in the short term; it's advisable to reduce exposure based on floating profit levels and wait for volatility to subside after the US earnings season in July before repositioning. A balanced allocation is maintained for the medium term, encompassing sectors with improving fundamentals like semiconductors (core stocks), power and new energy, and machinery, alongside segments like certain food & beverage and consumer services that are at low valuations with improving profit expectations.

ETF Activity

Wanjia Livestock Farming ETF (159023) debuted today, closing down 0.4% at RMB 1.005 with a turnover of RMB 88.688 million. The fund tracks the CSI Livestock Farming Industry Index, covering leading companies across the entire livestock farming industrial chain, including pig farming, poultry farming, feed, and animal health.

China Southern Grain ETF (159063) also listed for the first time, closing up 0.29% at RMB 1.034 with a turnover of RMB 164 million. The fund tracks the CNI Grain Industry Index, covering companies related to the grain industry chain, including grain planting, processing, seed production, and grain and oil trade.

Penghua Medical Devices ETF (159057) made its debut, closing down 0.3% at RMB 0.993 with a turnover of RMB 53.5962 million. The fund tracks the CSI All Share Medical Devices Index, primarily covering leading medical device enterprises, including segments like medical equipment, home medical devices, high-value consumables, and medical aesthetic consumables.